Blogs & Comment

Hot Stock: Toyota Motor Corp.

Japan's stock market is soaring


Thanks to Japan’s aggressive quantitative easing program—it’s buying billions of dollars of bonds—the country’s stock market is soaring. While a lot of companies have benefited from the lift, one well known business is doing better than most.

Since January, Toyota Motor Corp.’s (NYSE: TM) stock has climbed 58%, while it’s up 97% over the past 12 months. A big reason for the gains is the weaker Japanese yen, which, due to the QE program, has fallen about 11% year-to-date.

While investors may be wondering if its climbed too far too fast, many analysts think its stock price will still rise. According to Bloomberg, 89% of people who cover the stock say it’s a buy.

Mark Grammer, senior vice-president of investment management at Mackenzie Investments, is also bullish on the stock. The biggest beneficiaries of a weaker currency are exporters, and with Toyota being one of the largest auto companies in the world, it sends a lot of its vehicles overseas.

Going forward, though, Grammer says it’s the company’s Lexus division that will bring in the most profits. About 90% of these cars are made in Japan, while 52% of the vehicles are bought in the U.S. Because of the weaker yen, “the margins for Lexus are going to improve dramatically,” he says.

He also likes that company isn’t heavily exposed to China, which has experienced an economic slowdown. “If you’re concerned by the slowdown in China, Toyota will be the least impacted of the major auto companies,” he says.

The company will also benefit from a still recovering auto sector in the U.S. and growth in the embattled European market. It also has a strong South East Asian business and it’s seeing improvement in the Japanese market too, says Grammer.

He thinks company earnings could grow by double digits over the next few years. The stock is currently trading at C$67, but some analysts think it could get as high as C$106 over the next 12 months.